9911796707
TMI Blog2023 (12) TMI 1226X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 for Assessment Year 2009-10 3. The grounds of appeal raised by the assessee read as under: "1. On the facts and circumstances of the case and in law, the order passed by the Commissioner of Income Tax (Appeal) and assessment order passed by Ld. Assessing Officer are bad in law. 2. On the facts and circumstances of the case and in law, the assessing officer erred in completing the assessment at income of Rs. 27,75,76,563/- instead of income of Rs. 33,52,536/- as returned by the appellant and Commissioner of Income Tax (Appeal) erred in not holding so. On the facts and circumstances of the case and in law, the CIT(A) should have deleted all the additions made by the assessing officer and should have directed the assessing officer to accept the income as returned by the appellant. 3a. On the facts and circumstances of the case and in law, the Commissioner of Income Tax (Appeal) erred in not deleting the addition of Rs. 7,80,08,374/- made by the Assessing Officer on account of disallowance of loss in derivative trading. b. On the facts and circumstances of the case and in law, the Commissioner of Income Tax (Appeal) erred in making enhancement to be appellant's income by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the Commissioner of Income Tax (Appeal) and assessing officer are erroneous, arbitrary and against the principal of natural justice and therefore, such inference / remarks are not sustainable. 8. On the facts and circumstances of the case and in law, the interest has been wrongly charged u/s. 234B of Income Tax Act, 1961. 9. On the facts and circumstances of the case and in law, penalty proceedings u/s 271(1)(c) of Income Tax Act, 1961 has been wrongly initiated." 4. When the matter was called for hearing, the ld. counsel for the assessee submitted that Grounds No.4 and 5 are not pressed in view of the relief granted by the CIT(A). The ld. counsel further submitted that Ground no.3 is the only substantive ground for adjudication purposes. In view of the assertions made, Grounds No.4 and 5 of the grounds of appeal are dismissed as not pressed. 5. Ground No.3 concerns additions of Rs. 7,80,08,374/- made by the Assessing Officer on account of disallowance of loss in derivative transactions on the platform of National Exchange of India (NSE). 6. Briefly stated, the assessee-company is a public limited company engaged in dealing in shares and securities etc. and other financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... light of the various judgments for adjudication on merits. 8. The CIT(A) however on merits not only decided the issue against the assessee but also issued a notice proposing enhancement of income by another amount of Rs. 5,30,39,741/-. The CIT(A) ultimately confirmed the disallowance of derivative loss of Rs. 7,80,08,374/- claimed by Assessee and also further enhanced the assessed income by Rs. 5,30,39,741/-. Resultantly, the addition of Rs. 13,10,48,115/- were made towards derivative transactions in the hands of the assessee. 9. The relevant paragraph dealing with the issue by the CIT(A) reads as under: "Regarding Ground No.4 of the Appeal relating to disallowance of loss on trading of derivatives amounting to Rs. 7,80,08,374, I find that the Ld. AO, in the assessment order, had acknowledged the fact of receipt of copy of account of M/s RB Masters Securities Ltd., Delhi, in which the total debit and credit balances were shown at Rs. 16,06,65,074/- and Rs. 15,89,53,696/-, respectively. Further, the AO also acknowledges that the Appellant had submitted copy of account of M/s Merwanjee Securities Ltd., in which a single transaction of Rs. 1, 12,613/-was booked. I find that the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 11873980 11779982.5 -93997.5 4 JP Associates 301450237.5 318777525 17327287.5 5 JP Hydro 22032031.25 21988125 -43906.25 6 LT 1590550 1409590 -180960 7 Parsvanath 224224105.00 231591115 7367010 8 Powergrid 26395022.5 26637476.25 242453.75 9 Reliance 16561117.5 21203287.5 4642170 10 Unitech 5217570 5089725 -127845 Total 80,12,49,537.8 85,42,89,279.3 5,30,39,741.5 Keeping in view of this, it is evident that during the period, 1.4.2008 to 31. 3.2009, in respect of all settlements recorded in the accounts of the appellant by the NSE, a net gain of Rs. 5,30,39,741.5 on all derivative transactions was made by it, whereas, the appellant had claimed net loss in this segment of Rs. 7,80,08,374/-, (which was disallowed by the Ld. AO). 6.4.5 In view of the above, a notice for enhancement of demand was issued u/s. 251(2), vide letter dated 19.1.2015, which reads as under: "During the course of appellate proceeding with regard your claim of losses in depravities transaction aggregating to Rs. 780,08,374/-, enquires were got conducted from National Stock Exchange us 133(6). The NSC, in response, vide lette ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above, it is observed that as in the F&O segment, no delivery of Scrips are effectuated as these transactions are speculative in nature, the net amount of gain or loss, as the case may be, booked on different dates of settlement go towards computation of profits/losses in the derivative transactions during the relevant financial ear. The confirmed account of the appellant by M/ NSE for FY 2008-09 does not show any outstanding position, as claimed by appellant. Therefore, the plea of the appellant is not justified, as speculative transactions are booked on the date of the net settlement, unlike the trading of shares on physical delivery basis, where, working of the losses/gains will require considering the unconcluded purchases made in the preceding year or the stock carried forward to subsequent year. It is seen that as against the aggregate buyings of Rs. 80,12,49,537.80, the appellant has booked Sellings of Rs. 85, 42, 89,279.30 during the previous year 2008-09. Keeping in view the same, the derivative loss of Rs. 7,80,08,374 is being disallowed and enhancement to the extent of Rs. 5,30,39,741.50, being the profit on the derivative transactions is being made to the total inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osition 173438 Add: Brokerage, transaction charges, service tax, stamp charges, securities transaction tax -438983 Net Loss -78008371 Loss claimed -78008374 11.1 Adverting to the tabular statement (supra), the ld. counsel pointed out that the assessee was holding open position at the beginning of the FY 2008-09 as on 01.04.2008 for the derivative contracts not matured in the preceding financial year 2007-08. The broker-wise and scrip-wise breakup can be discerned from the tabular statement. Similarly, the contracts which did not mature and close during the Financial Year 2008-09, the respective closing position were carried forward to F.Y. 2009-10. The loss incurred during the year for contract matured and also contract which remained open at the end of the year have been determined on 'mark to market basis' as per the rudim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning of the year as well as at the end of the year. The CIT(A) has omitted to take cognizance of such open position, i.e., derivatives contracts not matured in the preceding year as well as the contract entries during the year at about the end of the financial year and matured on the settlement date falling in the next year. 11.3 The ld. counsel referred to the broker-wise ledger account and scrip-wise profit/loss in derivative contracts. The ld. counsel thus essentially submitted that the CIT(A) misdirected himself in law in disallowing the derivative loss claimed by the assessee and further enhancing it by imaginary profit of Rs. 5 crore solely based on the data provided by the NSE which were confined to the derivative transactions entered on behalf of the assessee and where the contracts stood matured. The open position was thus not taken into account while determining the correct profit/loss from derivative contracts. 11.4 The ld. counsel further referred to audited financial statement and adverted to note no.14 of the financial statement where the disclosure of 'open position' in the preceding financial year and open position carried forward during the year in future contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relation to derivative contracts which were entered during the year and also matured during the financial year 2008-09 in question together with the loss crystallized during the year in respect of opening outstanding position brought forward as well as year end 'open outstanding position' carried forward in relation to contracts not matured during the year. The ld. counsel submitted that CIT(A) proceeded at fallacious factual premise based on limited data on buy and sale trade only in relation to F.Y. 2008-09 without seeking details of opening and closing outstanding positions. The ld. counsel submits that once the profit/loss arising from opening outstanding position as well as closing outstanding position are given effect, the loss resulted to the assessee in derivative contract matches with the reported loss in the audited financial statement and thus cannot be displaced. The ld. counsel thus submitted that the CIT(A) essentially proceeded on a wholly mistaken presumption of facts and on a totally wrong premise. The correct profit/loss on derivative transaction cannot be determined without giving effect to the profit/loss on unmatured (open) contract carried forward from precedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee and claimed as allowable expense. The CIT(A) made inquiries with the Stock Exchange but however grossly misunderstood the elementary gamut of transactions. The CIT(A) observed that as per the information received from NSE the total purchases were for Rs. 80,12,49,537/- and total sales were for Rs. 85,42,89,279/-. The CIT(A) accordingly inferred that difference of sales and purchases, i.e., Rs. 5,30,39,741/- was the profit earned by the assessee instead of loss of Rs. 7,80,08,374/- as claimed by the assessee. The CIT(A) thus disallowed the loss claimed by the assessee and also made enhancement of taxable income by Rs. 5,30,39,741/-. 14.2 The pith and substance of the case of the assessee is that the CIT(A) while rejecting the derivative losses and indulging in enhancement as acted in an ostensibly erroneous and arbitrary manner. The CIT(A) has failed to appreciate the factual position in correct perspective and made huge addition in a casual manner. The CIT(A) has made reference to the total purchases position and total sale position entered into during the year in a rather simplistic manner without taking note of the factual position made available to him that derivative losses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atured during the year in question and likewise open position which remained unmatured and carried forward in the subsequent financial year. The approach of the assessee to recognize profits/losses in open contracts appears to be prima facie in tune with the accounting practices. The effect of open position if not taken will give rise to totally absurd conclusions. The profit/loss carried already reported for a part of the period in the preceding accounting year will get accounted for again during the year. Similarly, the profits/losses accounted for covering a part of the financial period during the year will again get accounted for in the subsequent year on termination of derivative contracts at the time of maturity. The action of the CIT(A) is apparently flawed and has lead to manifestly absurd results. The action of the CIT(A) cannot be justified in any manner and thus liable to be set aside. The derivative loss claimed by the assessee appears fully justified and requires to be accepted. The plea on behalf of revenue that such loss from open position has no effect on profit and loss is devoid of any merit. We thus set aside the order of the CIT(A) and direct the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
